Google's cloud business is growing so fast that even a $205 billion capital spending commitment can't keep up with demand. CEO Sundar Pichai acknowledged on the company's second-quarter earnings call that Alphabet remains "supply constrained" for artificial intelligence computing power, a problem that sounds like a complaint but actually signals explosive growth. The company is so confident in this momentum that it's pre-selling chunks of its scarce capacity to outside customers, including a massive deal with Anthropic, the AI startup behind the Claude language model.

Why Is Google Selling Its Scarcest Resource to a Competitor?

The answer lies in the numbers. Google Cloud, the division that rents computing power to outside customers, grew revenue 82 percent year over year in the second quarter to $24.8 billion, up from 63 percent growth in the first quarter. But the profit growth is even more striking. Operating income more than tripled from $2.8 billion to $8.8 billion in the same period, pushing the segment's operating margin to about 36 percent, compared to just 21 percent a year earlier.

This explosive profitability explains why Alphabet is willing to commit enormous amounts of computing power to Anthropic, even though that capacity is in short supply. The company has agreed to provide Anthropic with multiple gigawatts of next-generation tensor processing units, or TPUs, the custom AI chips Google designs in-house. Starting in 2027, Anthropic will gain access to about 5 gigawatts of this capacity through a partnership involving chip maker Broadcom. To put that in perspective, a gigawatt is enough power to supply roughly 750,000 homes for a year.

Google has also invested heavily in Anthropic itself. In April, Google agreed to invest up to $40 billion in the startup, putting in $10 billion immediately with as much as $30 billion more tied to performance milestones. This dual strategy, serving as both supplier and investor, ties Google's fortunes directly to Anthropic's success.

How Is Google Financing This Massive Infrastructure Bet?

Building all this capacity before the revenue arrives requires creative financing. In the second quarter alone, Alphabet's capital spending of $44.9 billion exceeded the $39.1 billion of cash its operations produced. To bridge the gap, the company raised $49.6 billion from stock sales in June and issued $20.3 billion in senior notes, a form of corporate debt. In other words, Google is financing enormous computing infrastructure ahead of the revenue it will generate, betting that the demand will materialize.

• Capital Spending Strategy: Alphabet raised its 2026 capital expenditure guidance to between $195 billion and $205 billion, far exceeding typical tech industry infrastructure investments.
• Financing Mix: The company combined operating cash flow with $49.6 billion in stock sales and $20.3 billion in debt issuance to fund the buildout.
• Pre-Selling Capacity: Google is converting scarcity into contracted revenue by signing long-term deals with major customers like Anthropic years before the infrastructure comes online.
• Margin Expansion: Google Cloud's operating margin jumped from 21 percent to 36 percent in a single year, demonstrating the profitability of this strategy.

What Does the Anthropic Deal Actually Look Like?

The relationship between Google and Anthropic has grown substantially. Last October, Anthropic agreed to expand its use of Google Cloud with access to up to 1 million of Google's TPUs, with well over a gigawatt of capacity coming online in 2026. That deal alone was worth tens of billions of dollars. By April, the partnership had expanded dramatically, with Anthropic securing multiple gigawatts of next-generation TPU capacity starting in 2027.

"We continue to be supply constrained, a sign of momentum and rapid adoption," said Sundar Pichai, CEO of Alphabet.

Sundar Pichai, CEO at Alphabet

There's a catch, though. According to a Broadcom securities filing, Anthropic's use of the expanded capacity "is dependent on Anthropic's continued commercial success". This means Google's massive infrastructure bet hinges on one young AI company growing into its commitments. Anthropic reported in April that its run rate revenue, or the annualized pace of its recent earnings, had surpassed $30 billion, up from about $9 billion at the end of 2025. That growth is extraordinary, but it also means a significant portion of Google's contracted future revenue depends on Anthropic maintaining this trajectory.

Why Should Investors Care About Google's Supply Constraint?

The supply constraint Pichai described is actually a sign of pricing power. When demand exceeds supply, companies can charge premium prices and lock in long-term contracts. Google Cloud's backlog of signed contracts reached about $514 billion in the second quarter, up from $462 billion at the end of the first quarter. That backlog is now more than four times the revenue Alphabet's entire business produced in the second quarter alone.

For investors, this suggests that Google has visibility into years of future revenue growth. The company is essentially pre-selling its computing capacity at profitable rates, converting scarcity into certainty. Google Cloud's 82 percent revenue growth and 36 percent operating margin represent the kind of momentum that can drive long-term shareholder value, especially if the company can continue expanding capacity without running into bottlenecks.

The broader implication is that artificial intelligence infrastructure has become the foundation of tech industry economics. Companies that can build and monetize computing capacity at scale, like Google, are positioning themselves to capture enormous value as AI adoption accelerates across industries. Alphabet's willingness to invest $205 billion in capital spending and finance it through stock sales and debt issuance reflects confidence that this bet will pay off for years to come.